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Why the Music Industry Must Change Its Strategy to Reach Digital Natives

Mark Mulligan is vice president and research director at Forrester Research, serving consumer product strategy professionals. He is a leading expert on music and digital media.

The music industry's fortunes (or lack thereof) are familiar to most. The CD is suffering one of the longest death rattles in consumer product history, and it is becoming painfully clear that digital downloads are no knight in shining armor about to whisk up the fallen music business and ride off into the revenue growth sunset.

So how did we get here? What happened? The answer is simple: You. You shook off the chains of record label control and decided to listen to music on your own. No more waiting until the CD was in the shops or for the song to come on the radio. With the advent of the PC and the Internet, you could download what you wanted when you wanted, and rip and burn to your heart’s content.

This digitization process put you, the audience, in control. It turns out that the consumer’s perceived value of music was dictated by scarcity or availability: Either you paid what the retailer asked or you didn’t get the music. With Napster and CD burning, high quality copies were available to everyone. But what does digital music strategy now need to do to in order to get out of it's current stall?

Digital Music Strategy is Playing Catch Up

Napster symbolized a shift from the distribution era, where everything was sold in units, to the all-access paradigm. The problem is that the majority of the music products currently available don’t grasp this concept. It took years of denial for the record labels to finally go digital, then to finally go DRM-free, and then to finally embrace ad supported content and the like. The net result of this repeatedly defensive and reactive strategy is always being one step behind present consumer demand.

The Demographic Time Bomb

Back in 2005, I warned that a demographic time bomb was ticking for record labels — that the Millennials, the first generation of digital youth, were opting for Kazaa instead of iTunes, and that unless a new wave of products embraced ad-supported or subscription services, music sales would decline for the rest of the decade and beyond. That demographic time bomb is now going off in our faces, with tumbling revenues and stalling digital growth highlighting the diminishing relevance of current music products. And now, to compound matters, the fuse has been lit on another demographic time bomb. A whole second generation of music fans is in imminent danger of following the Millennials out of the music-buying marketplace: The Digital Natives (12 to 15 year olds).

Digital Natives

In the music industry’s first digital decade, efforts focused on converting 30-something CD buyers to digital downloads and trying to win over the file-sharing Millennials (now aged 16-24) with the wrong digital products. It’s still the dominant strategy (Spotify is one late but crucial step forward). The strategy left the Digital Natives un-catered to, because their needs differ so much from those of previous generations.

The Digital Natives give us a sneak peak at the future. Millennials looked like the future for a while but their behavior has a finite life span. For example, ripping and burning CDs, even downloading from BitTorrent and iTunes both recreate the analog behavior of getting units of music. This is because they started out in the analog era. They are the transition generation with transitional behaviors.

Digital Natives don’t have that analog era baggage. All they’ve known is digital. Online video and mobile are their killer apps. These Digital Natives see music as the pervasive soundtrack to their interactive, immersive, social environments. Ownership matters less. Place of origin matters less. Context and experience is everything. In a world beyond content scarcity, experience is now everything. With "free" infecting everything, the content itself is no longer king. Experience now has the throne.

Future Music Products Need "SPARC"

A radical shift in music product strategy is the only feasible response. To harness the potential of the Digital Natives and to meet emerging consumer demand, digital music products must have SPARC. That is to say, they must be:

Social: Put the crowd in the cloud.

Participative: Make them interactive and immersive.

Accessible: Ownership still matters but access matters more.

Relevant: Ensure they co-exist and join the dots in the fragmented digital environment.

Connected: 174 million Europeans have two or more connected devices. Music fans are connected and expect their music experiences to follow suit.

Music products must harness disruption — that isn’t in question. What is, is whether they do so quickly enough to prevent another massive chunk of the marketplace from disappearing for good. And as the canary in the coal mine for media businesses at large, music companies offer lessons for product strategists across all content genres. Be it books, TV or movies, sooner or later the needs of the Digital Natives must be met. If they’re not, these consumers will go straight to the free legal alternatives that do.

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